Technology

Rambus: We Were Price-Fixing Target


Chip technology designer Rambus may have just gotten a big leg up in a legal battle against chipmakers it has accused of fixing prices in the memory chip market. A cache of newly released e-mail messages shows those companies shared information on pricing and suggests their actions were motivated by a desire to shove a Rambus-backed technology out of the market.

The e-mails are contained in documents that have previously been sealed under a protective order. Rambus prevailed in convincing the judge to unseal the documents, and the protective order expired May 31. Rambus provided copies of the documents to BusinessWeek Online.

DISPUTES REMAIN.Micron Technology (MU) Samsung, and Hynix Semiconductor have already admitted to conspiracy to fix prices on computer memory chips during a period starting in 1999 and ending in 2002. The admission followed a a four-year investigation by the Justice Dept. that resulted in more than $700 million in fines, and jail terms for several executives of those companies.

But in 2004, Rambus (RMBS) filed its own antitrust lawsuit in a California state court in San Francisco. The suit alleges that Micron, Hynix, Samsung, and Infineon Technologies (IFX) colluded to fix prices on computer memory chips from 1999 to 2002 in such a way as to drive a type of chip on which Rambus held many patents out of the market. Rambus has since settled all outstanding legal disputes with Infineon, but the fight with the other three is pending.

The companies worked together to improve prices on a competing type of memory chip in order to discourage computer makers like Dell (DELL), Hewlett-Packard (HPQ), Gateway (GTW), and others from adopting a type of memory known as Direct Rambus Dynamic Random Access Memory (RDRAM) in their computers, and instead favor a competing type of memory chip known as Double Data Rate DRAM (DDR-DRAM).

E-MAIL TRAIL.One e-mail, dated June 5, 2001, from Micron Vice-President Linda Turner to other Micron employees was in response to worries about prices on DDR-DRAM that had been falling. "No problem!," Turner wrote. "We want DDR to explode in the marketplace so have actually been requesting Infineon, Samsung, and Hynix to lower their DDR pricing to help it become a standard (and drive Rambus away completely)."

An earlier e-mail, dated Feb. 16, 2000, from Micron sales representative Tom Addie to a Micron sales manager identified as "mgrant," suggests that Micron was worried about PC makers showing strong interest in the Rambus-designed RDRAM memory chips, which were being manufactured by Samsung.

Addie wrote in the e-mail that someone at Samsung had told him that Compaq was "pressing hard for Rambus support" based on "success that Dell was having" using the chips in its products. A later email to Addie, dated May 22, from a Micron account manager named Bill Lauer asks if Addie can "check in with your Sammy contacts," referring to Samsung.

STRONG COUNTEROFFENSIVE. Yet another e-mail dated July 3, 2001, this one between employees of Hynix, discusses setting up a meeting with Micron Vice-President Mike Sadler "to discuss with us measures to stabilize the market price."

The chip companies have repeatedly sought to portray the price-fixing to which they admitted in the Justice Dept. antitrust investigation as being unrelated to the matters in the Rambus case. Micron released a written statement portraying the Rambus technology as having failed in the marketplace on its own technical and other merits relative to other chip technologies available at the time.

"The Rambus lawsuit relates to the failure of RDRAM in the marketplace, which is unrelated to the Department of Justice's price-fixing investigation,” Micron says. "Rambus has attempted to bootstrap the DOJ price-fixing investigation into a supposed boycott of Rambus DRAM. Rambus DRAM was a failure in the marketplace because it was too costly and any performance differentials were not sufficient to justify the inherit cost differences." Messages left for attorneys representing Hynix were not immediately returned.

ROYALTY-RESISTANT. At the heart of the cases are efforts by Rambus and other companies to persuade computer makers of the merits of competing memory chip technologies. Rambus, with help from Intel (INTC), had sought to nudge the computer industry to adopt RDRAM as the new standard for personal computers and servers. RDRAM chips were supposedly much faster than memory chips used at the time. The trick was convincing the memory chip companies to go along with it.

That wasn't easy. Chipmakers -- Micron especially -- hated RDRAM for one reason: It required paying stiff royalties and licensing fees to Rambus. Their DDR-DRAM wasn't as fast, but didn’t have expensive Rambus patents tied to it.

What followed was nothing short of World War III in the memory chip world, and in fact, the battle isn't over yet. When RDRAM failed to succeed in the market, Rambus asserted fundamental patents on DDR-DRAM. The result was a mind-bendingly complex series of lawsuits filed in venues as disparate as Virginia and Italy, in which Rambus has sought to enforce patents on DDR-DRAM, while the chip companies sought to have those patents invalidated.

RECORD FINES. In the investigation launched in June, 2002, the Justice Dept. has already levied $731 million in fines against other memory chip manufacturers, including Infineon, South Korea’s Samsung, and Hynix Semiconductor, and also against Japan’s Elpida. The collective fines are the largest ever handed down by the U.S. government in an antitrust case.

The investigation has also resulted in jail time for executives from all four companies, the most recent being four Hynix executives who agreed to terms ranging from five to eight months in jail, and one Micron executive who pled guilty to tampering with evidence.

In its statement, Micron reiterated a commitment to cooperate with the Justice Dept.'s ongoing investigation, in which it is participating under a corporate leniency program. Micron has said it doesn't expect any prosecution, fines, or penalties related to the Justice Dept.'s case. The exact provisions of that agreement have not been disclosed, nor has the full scope of Micron's role in the conspiracy been revealed.


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